17 Jan Response to PHIAC competition paper
The Australian Centre for Health Research (ACHR) promotes research and debate on health care policy and practice, including in the private health sector. It draws on a diversity of health care interests to support its work, and is well-placed to comment on the Private Health Insurance Administration Council (PHIAC) Premiums and Competitions Unit (PACU) Discussion Paper, Competition in the Private Health Insurance (PHI) Market.
While ACHR welcomes PHIAC’s interest in the dynamics of the PHI market, we believe that PHIAC’s principal role in promoting an efficient and competitive industry is prudential and governance supervision, not policy leadership. The PACU Discussion Paper signals PHIAC’s departure from that conception of its role.
In general, the Discussion Paper is a helpful contribution to literature on the industry, including bringing together some very useful data and other sources in the one document. ACHR is, however, concerned that it:
- Brings PHIAC into policy agendas that are more properly the role of the Department of Health and Ageing.
- Has an underlying presumption that more, not less regulation is necessary to improve efficiency and competition in the PHI industry; and
- Fails to question the efficacy of, or indeed the need for, the deep layers of existing regulation in the industry, and whether greater deregulation is possible or desirable – including whether PHIAC needs to exist separately to the general insurance and financial services regulator, the Australian Prudential Regulation Authority.
ACHR’s view is that the PHI industry is highly over-regulated, and that some deregulation and market liberalisation is justifiable in the public interest. To this end, this paper points out that the industry and its products are subject to regulation almost as if they are toxic substances like nuclear waste. This paper argues that PHIAC therefore should operate on the basis that:
- Industry-specific regulation to protect consumers and taxpayers is necessary, but only to the extent needed to ensure the minimum necessary to achieve this.
- The preferred outcome is reducing not increasing regulation, reporting requirements and related red tape; and
- If existing general business regulation affecting the PHI industry already works effectively (eg in the jurisdictions of the Australian Competition and Consumer Commission, the Australian Prudential Regulation Authority, and the Australian Securities and Investments Commission) there is no need for more onerous regulatory requirements specific to PHI.
As a general principle, regulatory supervision and compliance standards in the PHI industry therefore should not exceed those applying in the wider business world in general and in comparable industries (such as general insurance and financial services) in particular.
This paper also highlights that two matters in particular constrain truer competition in the PHI industry: the close regulation of PHI premiums, including personal approval of rate changes by the Minister for Health; and keeping the market leader, Medibank Private in public ownership.
ACHR therefore advocates a Five Point Plan of “headline” measures to drive a more competitive environment in the PHI industry. These Five Points are:
- Selling Medibank Private as soon as possible to create a more level industry playing field.
- Ensuring that PHI industry solvency and capital adequacy standards are adequate but realistic, not gold-plated.
- Promoting risk equalisation (RE) or reinsurance arrangements that protect insurers and consumers against unexpected claims pressures while sharing the burden of high-cost claims and high-risk insured persons fairly amongst all insurers. Current arrangements do not spread risks fairly enough.
- Untangling the regulatory red tape that strangles the PHI industry, recognising that PHIAC is just one regulator of many. Considering the merger of PHIAC into the Australian Prudential Regulation Agency is especially recommended; and
- Ending Ministerial approval of PHI premium rates and increases, and let the market determine its prices in a competitive environment though Independent PHI Pricing. The Government’s proposed move to Consumer Price Index-linked annual indexation of the PHI Rebates can drive this change by allowing Ministers to get out of premium setting without Budget fears of Rebate-related cost blowouts.
Taken together these points, coupled with a general commitment to promoting competition through greater deregulation wherever possible, and a regulatory attitude that trusts private health insurers to do the right thing in their business activities, will go a long way towards fostering greater competition and efficiency in the industry.
If these points are applied prudently, the Commonwealth’s very large direct investment in private health through the Private Health Insurance Rebates (over $4 billion in 2012-13) will not be compromised.